Infrastructure Australia and others have previously commented on the need to improve infrastructure planning and project selection processes across all tiers of government.
Australia needs integrated infrastructure planning. Better long-term planning and clearer accountability will improve effectiveness, reduce costs and attract broader investment. There needs to be a greater focus on integrating transport strategies with land use plans, particularly when considering the future of transport networks, corridors and land allocation.
Planning the provision of infrastructure has never been more challenging. Although planning necessarily involves dealing with uncertainty, the current confluence of issues where major shifts are possible is striking. The uncertainties include:
■ the implications of demographic change for Australian society, both generally and government finances in particular, e.g.
- the impact on government finances; and
- whether older persons might have different patterns of infrastructure use;
■ shifts in decades-long patterns of demand, e.g.
- shifts in housing demand, both in terms of location (infill versus greenfield) and household size (reversal of the pattern of falling household sizes); and
- shifts in the demand for transport (moderating rates of car usage), energy (falling household demand for electricity) and water (uncertainty whether household usage has bottomed out);
■ the scope of technological change, e.g.
- it is unclear how quickly various intelligent transport systems might mature and how extensively they could be applied;
- changes in photovoltaic and battery technologies especially and their implications for energy networks; and
- changes in telecommunications and business/cultural responses, e.g. uptake of telecommuting;
■ changes in the global and local economy, e.g.
- uncertainty as to how many nations deal with existing debt obligations;
- the scope for building on areas of competitive advantage; and
- the scope for expanding other services exports, which will be important for generating employment and wealth in urban areas;
■ the future of work, e.g. where people work, incomes, and part-time work, e.g.
- whether service industries will continue to agglomerate in major centres within the cities;
- whether greater adoption of part-time work changes commuting patterns; and
- whether telecommuting can support the development of more flexible labour markets; and
■ the response to climate change and uncertainty as how the international community will respond, e.g.
- whether governments reach a global agreement on emissions reduction targets and follow through on commitments will have a major impact on decisions in the energy and transport sectors.
In the face of issues such as these, wider use of scenario testing and other approaches to dealing with uncertainty, e.g. the application of real options analysis,69 is likely to improve planning and project development in the future. Scenario planning is not part of the main stream of infrastructure planning practice in Australia. Real options analysis has been applied in some circumstances, e.g. means of meeting Sydney's water needs, and could be applied in other cases.
Improvements in infrastructure planning are being made. For example, as noted in Infrastructure Australia's 2012 report to the Council of Australian Governments (COAG), some jurisdictions are adopting longer term horizons for their infrastructure planning. Jurisdictions are also committing resources to long-term strategic planning. Nevertheless, the report went on to observe that:
Prioritisation of proposed projects within a portfolio of potential investments requires further attention. This approach will improve government and public understanding of the opportunity costs and benefits of investing in some projects and not in others. Making progress on this front will enable decision-makers and the public to debate more openly the ability of projects to make a balanced contribution to meeting … national objectives.70
Governments have increasingly acknowledged the need for close integration of their land use and infrastructure planning efforts.71 This covers not only integration of land use and transport infrastructure, but also includes integration with other infrastructure, e.g. sequencing of the provision of water and energy infrastructure to support greenfield urban development.
The scale of projected population growth in Australia's cities and regional centres emphasises the criticality of effectively integrating all forms of land use and infrastructure planning. Progress is being made. Densities are slowly being raised around major transport nodes, and efforts to coordinate and sequence the provision of infrastructure are improving.
But more will need to be done.
In particular, integration efforts will need to focus on:
■ integration of land use and transport planning. This will require intergovernmental action, especially between state/territory governments and local governments; and
■ developing improved mechanisms for sequencing redevelopment and infrastructure in our cities. At present, mechanisms for coordinating the sequencing of housing and infrastructure appear to be focused primarily on greenfield development.
Particular weaknesses remain in project development and selection. In its 2014 report on public infrastructure, the Productivity Commission observed, 'there is an urgent need to comprehensively overhaul processes for assessing and developing public infrastructure projects. … It is essential to reform governance and institutional arrangements for public infrastructure to promote better decision making in project selection, funding, financing and the delivery of services from new and existing infrastructure'.72
Governance frameworks for project appraisal and selection are therefore critical to the identification and development of Australia's infrastructure. One successful mechanism for transparent oversight of major projects is the conduct of 'gateway reviews' at key points across a project's implementation lifecycle.73 These reviews help to ensure that project implementation processes are accountable and provide valuable feedback for decision-makers and stakeholders to make changes that will improve the delivery of the project. However, such reviews are not always conducted by Australian governments.74
Guidance material on best practice appraisal, such as the National Guidelines for Transport System Management,75 is available for governments to use. Application of the guidelines to planning and project development has been inconsistent. For example, while cost-benefit analysis is a well-established tool for determining the feasibility of projects and ranking options, the quality of the data underpinning such analyses needs to be improved and the assumptions more rigorously tested.
The quality of infrastructure planning and project decision making can only be as good as the information underpinning those efforts allows. Evidence-based decision making requires data, and analytical capability to assess the data. In this regard, good work is being done by bodies such as the Australian Urban Research Infrastructure Network and others.
Nevertheless, there are continuing weaknesses in the depth and breadth of data available to governments and industry to make better informed plans and project decisions. In the transport sector, for example, data and information on the demand for transport and performance of our networks needs to be much richer. Experience on the costs of projects is not captured in a systemic manner. Asset management information also tends to be held by individual governments or agencies.
Data needs to be rigorous, integrated, consistent and publicly available. If it is not, there will be less effective decision making at many levels and inadequate public understanding of (and involvement in) decision-making processes.
Transparency is also a vital element of best practice planning, project selection and regulation practices. However, decision making in the infrastructure sectors often remains relatively opaque. Limited transparency in planning and project selection processes has caused concern in recent years, particularly when major infrastructure projects proceed without a cost-benefit analysis, or without the results of such analysis being disclosed.
In summary, front end effort is fundamental to successful planning, project selection and scoping. It takes time and resources. However, the benefits of that upfront investment are significant. The decisions are more rigorously made and therefore involve better understood risks.
Audit findings 16. Australia needs integrated infrastructure and land-use planning, across all levels of government. Progress has been slow in securing the efficiency and service delivery benefits of strategic decision making. 17. Sound infrastructure planning requires an ongoing commitment to engage communities throughout the decision-making process. This improves the likelihood of meeting community needs and expectations, and reduces objections to development. 18. Improvements in long-term infrastructure planning, project appraisal and project selection (including the consistent use and transparent reporting of cost-benefit analyses) are necessary if Australians' expectations are to be realised. 19. Long-term planning necessarily involves dealing with uncertainty, with current issues including: a. the implications of demographic change for Australian society generally and government finances in particular; b. the scope and direction of technological change; c. changes in the global economy; d. the future of work, e.g. where people work, incomes, and part-time work; and e. the prospect of climate change, and uncertainty as to how the international community will respond. 20. There is a need for more detailed information on infrastructure performance to be assembled consistently, at a national level, and for this information to be reported publicly to assist the forecasting of benefits and costs when planning infrastructure. |
Experience in the private sector is instructive. Well-run companies invest significant effort in understanding the portfolio of their potential investments and the specifics of individual investment decisions. Failure to do so carries material commercial risks.
Investment in better planning and project development practices also provides the public with an opportunity to better understand the rationale for particular decisions, including the rationale for making particular trade-offs, either between projects and/or within a project.
Community engagement is a crucial part of sound infrastructure planning. Communities should be involved throughout the various stages of the decision-making process, including being informed of the issues and understanding the available options. An ongoing commitment to involve the public can increase the likelihood that services will meet needs and expectations. It can also reduce opposition to new projects, saving on time and cost.
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69. Real options analysis is a technique that can be used to assess the costs and benefits of various options associated with capital investment decisions, both for a portfolio of projects or individual projects. The 'options' or decisions relate to: initiating or deferring a project; the size of a project; staging of a project, abandoning a project. Using the technique can assist decision-makers in assessing the costs (essentially any non recoverable capital spending) of decisions to maintain some flexibility to deal with uncertainty. The technique is not relevant for all cases, e.g. the effort associated with applying real options analysis may not be warranted with smaller projects. However, for larger projects or portfolio decisions, application of the technique is worth considering.
70. Infrastructure Australia (2012c), p. 19
71. For example, the nine criteria for strategic planning of capital cities adopted by the Council of Australian Governments in December 2009 emphasised the need for integration across function and agencies. See Council of Australian Governments (2009).
72. Productivity Commission (2014a), p. 2
73. Victorian Department of Treasury and Finance (2013)
74. Department of Infrastructure and Transport (2012)
75. Australian Transport Council (2006). The guidelines provide relatively limited information on some issues, e.g. discount rates, that are important in cost benefit analysis. Updated guidelines are expected later in 2015.